Non-conforming loans took a break after the housing crisis. Unless you had perfect credit, you weren’t getting a loan. Today, things have changed. You can secure a subprime loan from a variety of lenders. Borrowers that are self-employed, have less than perfect credit, or don’t have consistent income are great candidates.
You’ll need a lender that funds the loans in-house. Read on to see how to proceed.
Call Different Banks
The first step is the hard part. You have to call around to find banks that keep loans on their books. Some banks advertise that they provide non-conforming loans. Others, you’d never know unless you called. Try to steer away from the bigger banks – they typically only hand conforming and government-backed loans. You want banks that are more local and smaller. They’re more likely to have a mortgage option for you.
Don’t restrict your search to just a few banks. Consider credit unions and mortgage lenders even outside your general area. If you have a specific circumstance, there might be a lender out there that specializes in it.
Ask About the Non-Conforming Home Loan Programs
Every bank will have a different program. This isn’t like the conforming loans where there are Fannie Mae/Freddie Mac guidelines everyone must follow. There is no secondary investor in this case. The bank has the final say.
This means they may be able to grant exceptions. It pays to be upfront and honest with each lender. Let them know your exact circumstances. They may be able to come up with a program for you. Just be prepared to disclose your income, assets, credit score, and employment information. The more information you provide up front, the more they will be able to help you.
Apply for the Non-Conforming Loan
Once you narrow your lenders down to a few, go ahead and apply for the loan. This way the lender can formally pull your credit. They can also evaluate your loan file a little closer. By doing this, the lender must also send you a Loan Estimate within 3 business days. This is what you are after. This is where you’ll get the information on the true cost of the loan.
Once you have the Loan Estimates from a few lenders, compare them. Look at the interest rate and the APR first. These are two major factors in your loan. The interest rate is the interest you’ll pay each month. The APR is the annual interest rate. It’s a true reflection of the cost of the loan.
When you look at the loans side-by-side, focus on the APR. This way you can tell which loan will cost you the most in the long run. You might find a loan with a low interest rate but very high APR. This usually means the loan has higher fees. You can decide if this is something you want to pay for the next 30 years. The lower interest rate might not mean as much to you when you look at it in those terms.
Watch Out for Fees
Every loan has fees unless you negotiate a no-closing cost loan with your lender. But, just because you have a non-conforming loan doesn’t mean you should overpay. Pay close attention to the origination, discount, and processing fees. Some lenders break the fees down individually. Others put them as one lump sum. Either way, you can total up the fees and see which one offers the best deal.
The non-conforming loan can help you get into the home you want. Today, there are hundreds of lenders out there. It’s up to you to do the hard work and see which one is right for you. There aren’t cut and dry regulations for these loans. Each lender will have unique programs. Use this to your advantage and find the loan that is right for you.